FEDERAL RESERVE SYSTEM People’s United Financial, Inc ...

FRB Order No. 2017-08 March 16, 2017

FEDERAL RESERVE SYSTEM

People's United Financial, Inc. Bridgeport, Connecticut

Order Approving the Merger of Bank Holding Companies

People's United Financial, Inc. ("People's United"), Bridgeport, Connecticut, a financial holding company within the meaning of the Bank Holding Company Act of 1956 ("BHC Act"),1 has requested the Board's approval under section 3 of the BHC Act2 to merge with Suffolk Bancorp, and thereby indirectly acquire The Suffolk County National Bank of Riverhead ("Suffolk Bank"), both of Riverhead, New York. Following the proposed acquisition, Suffolk Bank would be merged into People's United's subsidiary bank, People's United Bank, N.A. ("People's United Bank"), Bridgeport, Connecticut.3

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (81 Federal Register 55457 (August 19, 2016)).4 The time for submitting comments has expired, and the Board has considered the proposal and all comments received in light of the factors set forth in section 3 of the BHC Act.

1 12 U.S.C. ? 1841 et seq. 2 12 U.S.C. ? 1842. 3 The merger of Suffolk Bank with and into People's United Bank is subject to the approval of the Office of the Comptroller of the Currency ("OCC") pursuant to section 18(c) of the Federal Deposit Insurance Act. 12 U.S.C. ? 1828(c). The OCC approved the merger on February 2, 2017. 4 12 CFR 262.3(b).

People's United, with consolidated assets of approximately $40.6 billion, is the 60th largest depository organization in the United States. People's United controls approximately $29.7 billion in consolidated deposits, which represent less than 0.3 percent of the total amount of deposits of insured depository institutions in the United States.5 People's United controls People's United Bank, which operates in Connecticut, Maine, Massachusetts, New Hampshire, New York, and Vermont. People's United is the 34th largest depository organization in New York, controlling deposits of approximately $3.4 billion in New York, which represent approximately 0.3 percent of the total deposits of insured depository institutions in that state.6

Suffolk Bancorp, with consolidated assets of approximately $2.1 billion, is the 412th largest depository organization in the United States, controlling approximately $1.9 billion in consolidated deposits nationwide, which represent less than 0.03 percent of the total amount of deposits of insured depository institutions in the United States. Suffolk Bancorp controls Suffolk Bank, which operates only in New York. Suffolk Bancorp is the 52nd largest insured depository organization in New York, controlling deposits of approximately $1.7 billion in New York, which represent 0.1 percent of the total deposits of insured depository institutions in that state.

On consummation of this proposal, People's United would remain the 60th largest depository organization in the United States, with consolidated assets of approximately $43.0 billion, which represent less than 0.2 percent of the total amount of assets of insured depository institutions in the United States. People's United would control consolidated deposits of approximately $31.6 billion, which represent less than 0.3 percent of the total deposits of insured depository institutions in the United States. People's United would become the 29th largest depository organization in New York, controlling deposits of approximately $5.1 billion, which represent approximately 0.4 percent of the total deposits of insured depository institutions in that state.

5 National asset and deposit data are as of September 30, 2016, unless otherwise noted. 6 State deposit data are as of June 30, 2015.

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Interstate and Deposit Cap Analysis Section 3(d) of the BHC Act generally provides that, if certain conditions

are met, the Board may approve an application by a bank holding company to acquire control of a bank located in a state other than the home state of the bank holding company without regard to whether the transaction is prohibited under state law.7 Under this section, the Board may not approve an application that would permit an out-of-state bank holding company to acquire a bank in a host state if the bank has not been in existence for less than the state statutory minimum period of time or five years.8 In addition, the Board may not approve an interstate application if the bank holding company controls, or would upon consummation of the proposed transaction control, more than 10 percent of the total deposits of insured depository institutions in the United States or, in certain circumstances, the bank holding company would upon consummation control 30 percent or more of the total deposits of insured depository institutions in the target bank's home state or in any state in which the acquirer and target have overlapping banking operations.9

For purposes of the BHC Act, the home state of People's United is Connecticut, and the home state of Suffolk Bank is New York.10 People's United is well capitalized and well managed under applicable law and People's United Bank has a

7 12 U.S.C. ? 1842(d)(1)(A). 8 12 U.S.C. ? 1842(d)(1)(B). 9 12 U.S.C. ? 1842(d)(2)(A) and (B). The acquiring and target institutions have overlapping banking operations in any state in which any bank to be acquired is located and the acquiring bank holding company controls any insured depository institution or a branch. For purposes of section 3(d) of the BHC Act, the Board considers a bank to be located in the states in which the bank is chartered or headquartered or operates a branch. See 12 U.S.C. ? 1841(o)(4)?(7). 10 See 12 U.S.C. ? 1841(o)(4). A bank holding company's home state is the state in which the total deposits of all banking subsidiaries of such company were the largest on July 1, 1966, or the date on which the company became a bank holding company, whichever is later. A national bank's home state is the state in which the main office of the bank is located.

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"Satisfactory" rating under the Community Reinvestment Act of 1977 ("CRA").11 New York does not have any minimum age requirements,12 and Suffolk Bank has been in existence for more than five years.

On consummation of the proposed transaction, People's United would control less than 1 percent of the total amount of consolidated deposits in insured depository institutions in the United States. In addition, the combined organization would control less than 30 percent of the total amount of deposits of insured depository institutions in New York, the only state in which People's United and Suffolk Bancorp have overlapping banking operations. The Board has considered all other requirements under section 3(d) of the BHC Act, including People's United's record of meeting the convenience and needs of the communities it serves. Accordingly, in light of all the facts of record, the Board may approve the proposal under section 3(d) of the BHC Act.

Competitive Considerations

Section 3 of the BHC Act prohibits the Board from approving a proposal that would result in a monopoly or would be in furtherance of an attempt to monopolize the business of banking in any relevant market. The BHC Act also prohibits the Board from approving a proposal that would substantially lessen competition or tend to create a monopoly in any banking market, unless the Board finds that the anticompetitive effects of the proposal are clearly outweighed in the public interest by the probable effect of the proposal in meeting the convenience and needs of the communities to be served.13

People's United and Suffolk Bancorp have subsidiary depository institutions that compete directly in one geographic banking market, the Metro New York City banking market.14 The Board has considered the competitive

11 12 U.S.C. ? 2901 et seq. 12 See N.Y. Banking Law ? 223. 13 12 U.S.C. ? 1842(c)(1). 14 The Metro New York City market includes Bronx, Dutchess, Kings, Nassau, New York, Orange, Putnam, Queens, Richmond, Rockland, Suffolk, Sullivan, Ulster, and Westchester

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effects of the proposal in this banking market in light of all the facts of record. In

particular, the Board has considered the number of competitors that would remain in the

banking market; the relative shares of total deposits in insured depository institutions in

the market ("market deposits") that People's United would control;15 the concentration

levels of market deposits and the increase in these levels as measured by the

Herfindahl-Hirschman Index ("HHI") under the Department of Justice Bank Merger

Competitive Review guidelines ("DOJ Bank Merger Guidelines");16 and other

characteristics of the market.

Consummation of the proposal would be consistent with Board precedent

and within the thresholds in the DOJ Bank Merger Guidelines in the

Metro New York City banking market. On consummation, the Metro New York City

counties and portions of Columbia and Greene counties in New York; Bergen, Essex, Hudson, Hunterdon, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset, Sussex, and Union counties and portions of Burlington, Mercer, and Warren counties in New Jersey; Pike County and portions of Monroe and Wayne counties in Pennsylvania; and Fairfield County and portions of Litchfield and New Haven counties in Connecticut. 15 Deposit and market share data are as of June 30, 2015, and unless otherwise noted, are based on calculations in which the deposits of thrift institutions are included at 50 percent. The Board previously has indicated that thrift institutions have become, or have the potential to become, significant competitors to commercial banks. See, e.g., Midwest Financial Group, 75 Federal Reserve Bulletin 386 (1989); National City Corporation, 70 Federal Reserve Bulletin 743 (1984). Thus, the Board regularly has included thrift deposits in the market share calculation on a 50 percent weighted basis. See, e.g., First Hawaiian, Inc., 77 Federal Reserve Bulletin 52 (1991). 16 Under the DOJ Bank Merger Guidelines, a market is considered unconcentrated if the post-merger HHI is under 1000, moderately concentrated if the post-merger HHI is between 1000 and 1800, and highly concentrated if the post-merger HHI exceeds 1800. The Department of Justice ("DOJ") has informed the Board that a bank merger or acquisition generally would not be challenged (in the absence of other factors indicating anticompetitive effects) unless the post-merger HHI is at least 1800 and the merger increases the HHI by more than 200 points. Although the DOJ and the Federal Trade Commission issued revised Horizontal Merger Guidelines in 2010, the DOJ has confirmed that its Bank Merger Guidelines, which were issued in 1995, were not modified. See Press Release, Department of Justice (August 19, 2010), available at opa/pr/2010/August/10-at-938.html.

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banking market would remain unconcentrated, as measured by the HHI and as defined by the DOJ Bank Merger Guidelines. The change in HHI would be small, and numerous competitors would remain in the market.17

The DOJ also has conducted a review of the potential competitive effects of the proposal and has advised the Board that consummation of the proposal would not likely have a significantly adverse effect on competition in any relevant banking market. In addition, the appropriate banking agencies have been afforded an opportunity to comment and have not objected to the proposal.

Based on all of the facts of record, the Board concludes that consummation of the proposal would not have a significantly adverse effect on competition or on the concentration of resources in the Metro New York City market or in any other relevant banking market. Accordingly, the Board determines that competitive considerations are consistent with approval.

Financial, Managerial, and Other Supervisory Considerations

In reviewing a proposal under section 3 of the BHC Act, the Board considers the financial and managerial resources and the future prospects of the institutions involved. In its evaluation of the financial factors, the Board reviews information regarding the financial condition of the organizations involved on both parent-only and consolidated bases, as well as information regarding the financial condition of the subsidiary depository institutions and the organizations' significant nonbanking operations. In this evaluation, the Board considers a variety of information, including capital adequacy, asset quality, and earnings performance, as well as public comments on the proposal. The Board evaluates the financial condition of the combined organization, including its capital position, asset quality, liquidity, earnings prospects, and the impact of the proposed funding of the transaction. The Board also considers the

17 Together, the two firms control 1.1 percent of the deposits in that market and their merger would increase the HHI by only 1 point. Nearly 240 competitors would remain in the market after the proposed acquisition.

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ability of the organization to absorb the costs of the proposal and to complete effectively the proposed integration of the operations of the institutions. In assessing financial factors, the Board considers capital adequacy to be especially important. The Board considers the future prospects of the organizations involved in the proposal in light of their financial and managerial resources and the proposed business plan.

People's United and Suffolk Bancorp are both well capitalized and People's United would remain so on consummation of the proposed acquisition. The proposed transaction is a bank holding company merger that is structured as a share exchange.18 The asset quality, earnings, and liquidity of both People's United Bank and Suffolk Bank are consistent with approval, and People's United appears to have adequate resources to absorb the costs of the proposal and to complete the integration of the institutions' operations. In addition, future prospects are considered consistent with approval.

The Board also has considered the managerial resources of the organizations involved and of the proposed combined organization. The Board has reviewed the examination records of People's United, Suffolk Bancorp, and their subsidiary depository institutions, including assessments of their management, riskmanagement systems, and operations. In addition, the Board has considered information provided by People's United; the Board's supervisory experiences and those of other relevant bank supervisory agencies with the organizations; the organizations' records of compliance with applicable banking, consumer protection, and anti-money-laundering laws; and information provided by the commenters.

People's United, Suffolk Bancorp, and their subsidiary depository institutions are each considered to be well managed. People's United's existing riskmanagement program and its directorate and senior management are considered to be

18 At the time of the merger, each share of Suffolk Bancorp common stock would be converted into the right to receive shares of People's United common stock, based on an exchange ratio.

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satisfactory. The directors and senior executive officers of People's United have substantial knowledge of and experience in the banking and financial services sectors.

The Board also has considered People's United's plans for implementing the proposal. People's United has conducted comprehensive due diligence and is devoting sufficient financial and other resources to address all aspects of the postintegration process for this proposal. People's United would implement its riskmanagement policies, procedures, and controls at the combined organization, and these are considered acceptable from a supervisory perspective. In addition, People's United's management has the experience and resources to ensure that the combined organization operates in a safe and sound manner, and People's United plans to integrate Suffolk Bancorp's existing management and personnel in a manner that augments People's United's management.19

Based on all the facts of record, including People's United's supervisory record, managerial and operational resources, and plans for operating the combined institution after consummation, the Board concludes that considerations relating to the financial and managerial resources and future prospects of the organizations involved in the proposal, as well as the records of effectiveness of People's United and Suffolk Bancorp in combatting money-laundering activities, are consistent with approval.

Convenience and Needs Considerations In acting on a proposal under section 3 of the BHC Act, the Board

considers the effects of the proposal on the convenience and needs of the communities to be served.20 In its evaluation of the effects of the proposal on the convenience and needs of the communities to be served, the Board considers whether the relevant institutions are helping to meet the credit needs of the communities they serve, as well as other potential

19 People's United will invite the members of the board of directors of Suffolk Bancorp to serve as members of a regional advisory board. People's United Bank also plans to hire the president and chief executive officer of Suffolk Bancorp as its New York Market President. 20 12 U.S.C. ? 1842(c)(2).

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